US mortgage rates climbed even higher this week, hitting 7.49% and pushing homeownership further out of reach for would-be homebuyers.
That’s up from 7.31% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 6.66%.
“Several factors, including shifts in inflation, the job market and uncertainty around the Federal Reserve’s next move, are contributing to the highest mortgage rates in a generation,” said Sam Khater, Freddie Mac’s chief economist. “Unsurprisingly, this is pulling back homebuyer demand.”
Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign. The central bank has indicated it may keep rates higher for longer, due to stubborn inflation. That has pushed up the 10-year Treasury yield, a key benchmark for mortgage rates.
The added cost of financing a mortgage, along with rising home prices due to historically low inventory of homes for sale, has sent home affordability to its lowest level in several decades. The result is a home sales pace that is more than 20% behind last year at this point in the year, according to the National Association of Realtors.
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Housing market remains stuck
Prospective buyers have been remarkably interest rate sensitive, typically pulling out of the market when rates surge.
Mortgage rates at 23-year highs have continued to depress the housing market, said Bob Broeksmit, Mortgage Bankers Association president and CEO.
“Purchase applications declined again last week, falling to the lowest level since 1995,” he said. “Despite the recent jump in rates, we still anticipate that the 30-year fixed-rate mortgage will drop before the end the year, providing some relief to prospective homebuyers heading into 2024.”
With homebuyers bowing out of the housing market as mortgage rates hover near 20-year-highs, homeowners have been even less likely to put their homes on the market, exacerbating an already short supply of available homes.
Over 90% of homeowners have mortgage rates under 6%, according to Black Knight, a mortgage data company, and many a good deal lower. They are not interested in trading their low rates for today’s higher ones.
Home affordability, meanwhile, continues to be very challenging for many buyers. Prices can creep up as house hunters compete over the few homes listed in a market.
“While declining pending home sales and new home sales signaled a slowdown in buyer activities, the increasing home listing prices and shorter days spent on market suggested that homebuyers are competing over the limited inventory,” said Jiayi Xu, an economist at Realtor.com.
All eyes on jobs numbers
While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
The 10-year Treasury yield hit 4.80% on Tuesday — its highest level since 2007 — as inflation pressures linger and the Fed continues its battle to cool the economy.
“We anticipate that mortgage rates will persist above the 7% threshold for an extended period,” said Xu.
All eyes are now on the September jobs report from the Bureau of Labor Statistics, set to be released on Friday.
Federal Reserve Chair Jerome Powell has emphasized the pivotal role that the robust labor market plays in the Fed’s interest rate decisions.
“It’s worth noting that in the September FOMC meeting, the Fed projected a 3.8% unemployment rate for 2023, down from 4.1% in June,” said Xu. “The upcoming September jobs report will tell us whether the economy aligns with projections and holds significant importance in clarifying the path forward.”
Analysts say if the jobs numbers show some weakness, then mortgage rates could tick down. However, if the jobs report is strong, expect rates to go up further.
